Manufactured housing: Shaky foundations threaten sector

PARADISE ISLAND, Bahamas - Facing a supply glut and a pipeline stuffed with deals, the manufactured housing sector is struggling to get back on its feet. Whether it can was a question tackled by a manufactured housing panel at the ABS East 2002 conference.

"The problem of the sector could basically be described as too much supply for the demand," said John Cerra, managing director of public ABS at TIAA-CREF.

The big factor in terms of supply is the size of the overhang, which varies depending on the source. Panelists cited Credit Suisse First Boston as quoting 40,000 repo units while Moody's Investors Service said the excess reached about 50,000 repo units. Fitch Ratings, on the other hand, pegged it at an unwieldy 100,000 repo units.

The sector's current dilemma is that repo inventory is mountain high, but at the same time issuers like Conseco Finance and Oakwood are so strapped for capital they either can't afford repo refinancing or they can't refurbish the repossessed units, panelists said.

"The story is about capitulation," said Cerra. Indeed, Greenpoint, Bombardier and Oakwood have already liquidated a greater proportion of their loans wholesale. Panelists said that Conseco will likely go the same route and would not be able to maintain its historical blend of wholesale versus retail liquidation. "The same panel in the next conference would know the answer," said one participant.

But is new capital going to trickle into the sector? According to John Devaney, president and trader at United Capital Markets, capital will only come back to the MH market if pricing falls in line with risk.

Pramila Gupta, managing director of Moody's, said it is not a matter of using loss mitigation techniques, but about making sure the borrower redeems himself, which requires close contact with the consumer. Pricing is also tricky. "It's a Catch 22," Gupta said.

The idea is to strike a proper balance between finding the right price to charge borrowers in order to attract a more credit-worthy bunch and having enough excess spread - on the order of four to five percentage points - to make the deals work.

In the words of one panelist, Conseco is so cashflow negative that a 1% loss to its $14 billion of off-balance sheet receivables might cause the company to simply "blow up."

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.